Life Insurance
Life insurance in an insurance policy contract between an individual and an insurance provider in which, the provider agrees to pay an agreed sum of money upon the death or critical illness of the insured. In return the insured pays a designated amount on a regular basis to the insurance provider which is called premiums. In case of illness or incapacitation, the money is paid off to the beneficiary and in case of demise of the insured person the money is paid to the designated beneficiary. In most parts around the world, there are 2 types of life insurance policies offered: protection based and investment based. Read on to know more about the general aspects of life insurance policies which are a general practice around the world:
Underwriting and Insurability in Life Insurance Policies
As per industry practice there are basically 2 types of contingencies covered by life insurance policies. One is that of the demise of the insured person and other is a contingency condition of a life threatening disease or condition (like accidents) of the insured in which he has been incapacitated and might face a loss of income. The value of the policy holder is based upon the choice of the insured person as per his "peace of mind". That is the insured chooses the value of money that would be paid off in case of the exigency situations. While underwriting, the insurance provider carries out a risk selection process through which he decides that cost of the insurance or the sum of money that would be charged to the insured in return of the assurance provided. The factors generally considered are age, gender, and the usage of tobacco by the person seeking insurance. Other issues like health condition and lifestyle are also taken into consideration.
Types of Life Insurance Policies:
The common types of life insurance policies are as stated below:
- Permanent Life Coverage: This type of policy remains in force till the maturity of the policy (which is decided during the underwriting procedure) or till the time the insured pays the agreed premiums at the regular intervals as decided. The cost of premiums is decided by the total number of payments that can be made by the insured person till the time of maturity of the policy. For example if a 25 year old male decided a life insurance policy could be important for him for $1 million which will mature when he turns 60 years of age, the cost of the monthly premiums will be around $100-$150 per month. If a 55 year old person decides to purchase a policy with similar payoff, his premiums costs would be much higher as the number of premiums would be considerably lower.
- Term Insurance: This is a form of pure insurance in which the policy holder purchases a cover in which the insurance provider pays off a lump sum amount in case of his death and no other reason. The key factors in this type of policy are the total amount of payoff to be made incase of demise of the insurer, the cost of the premiums charged by the insurance provider, and the total term of the policy.